Key things to watch out for in HCL Tech Q2 earnings

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Key things to watch out for in HCL Tech Q2 earnings

Mid-tier software services exporter HCL Technologies will report third quarter earnings on Tuesday, apart from its larger rival Tata Consultancy Services. The results will be keenly eyed amid the Euro zone crisis and global economic uncertainty.

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Moneycontrol Bureau

Mid-tier software services exporter HCL Technologies will report second quarter earnings on Tuesday, apart from its larger rival Tata Consultancy Services , which will report third quarter results. The results will be keenly eyed amid the Euro zone crisis and global economic uncertainty.

Technology bellwether Infosys had last week cut its full year guidance and warned that the global economy, driven by slower growth in developed markets coupled with the European crisis could impact the growth of the IT industry.

These are the key things to watch out for in HCL Tech's press release/management commentary:

• Large deal wins and deal pipeline
• Progress on restructuring the BPO business
• Outlook on overall global demand scenario and IT spends by clients

Religare Institutional Research analysts Rumit Dugar and Manoj Singla expect HCL Tech's US dollar revenue will grow 3% sequentially. In Rupee terms the analysts expect sales to grow 35.1% year-on-year to Rs 5,254.8 crore, while profit after tax is seen up 37.2% to Rs 514.1 crore in second quarter. Margins are expected to go up 100 bps due to tailwinds from the recent rupee depreciation.

However, some of the gains from rupee depreciation will be offset by forex losses to the tune of Rs 75.8 crore, according to Motilal Oswal's Nitin Padmanabhan and Ashish Chopra. There will also a be a partial impact of wage hikes and employee stock programme on the company's margins, analysts say.

The Oct-Dec quarter typically has lower number of working days due to the Diwali and Christmas festivals. That apart HCL Tech absorbed a higher number of freshers during the quarter and so its utilization rates are likely to drop by 90bps according to Angel Broking.

HCL Tech shares closed up 2.1% at Rs 405.95 on NSE on Monday. The stock is down 0.8% since September 30, compared with the broader Nifty index, which has slipped 1.4% during the period.

Motilal Oswal and Angel Broking have a "buy" rating on HCL Tech.

Nachiket Kelkar
nachiket.kelkar@network18online.com